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Opinion: Gold has everything in its favor

Left for dead for almost four years, gold stocks have suddenly made an amazing comeback: They’re up over 50% this year.

Several gold investors who have enjoyed the ride so far believe the next move is up from here — possibly even taking out prior highs for the metal.

Gold traded on Friday for $1,245 an ounce. It went as high as $1,895 in 2011.

“I would not be surprised to see all-time highs in this next leg of the precious-metals cycle,” says John Hathaway, manager of the Tocqueville Gold Fund TGLDX, +4.25% He thinks that could take a few years.

“This is the first leg up,” agrees Frank Holmes, who manages the U.S. Global Investors Gold and Precious Metals Fund USERX, +3.88%

“Gold will shuffle around at this level. But I can’t help but think it goes higher,” says Tom Winmill, who manages the Midas Fund MIDSX, +3.33%

Of course, no one can call day-to-day moves in any asset. So don’t buy tomorrow and expect instant profits, especially after such a run. And these gold experts may all have a built-in bias, in that they make their living by offering gold investment products.

Yet their reasoning makes sense, when you look around at what’s going on in the world. Here’s the gist of their thinking. They also suggest five stocks and several other ways to get gold exposure, at the end of this column.

The war on cash

Interest rates on savings are negative in many places around the world. And there have been calls by central bankers like Mario Draghi and economists like Larry Summers to eliminate high-denomination bills. The drumbeat for digital cash is getting louder.

“There’s a war on cash and a war on savings, and people are starting to see that,” says Hathaway. “All of this drives people to think: ‘What else is there? Where else can I keep my money safe?’ ”

One answer, of course, is gold.

Historically, gold has done well when interest rates turn negative — like they have now in Japan and Europe, as central bankers reach for another tool to stimulate economies. Back when gold was at its peak near $1,900 in 2011, the 10-year U.S. Treasury note paid a negative 3% yield, points out Holmes. “Gold is always attractive when you have negative interest rates,” he says.

Negative interest rates also remove a standard criticism of gold: the fact that it yields nothing, says Trey Reik, a portfolio manager with Sprott Asset Management. “This puts gold back on the radar.”

Loss of confidence in central bankers

The use of negative interest rates by central bankers in Japan and Europe to try to stimulate growth smacks of desperation.

In the U.S., the Federal Reserve seems confused. It reversed course quickly since December, backing away from suggestions at the time...